Automotive Market Research Perspectives on Selling “Green” in a Try-to-Survive Market

2 May 2009

by Bill Cooke

In a panel session entitled “Does Green Matter in a Try-to-Survive Market?” at the ATX-Consulting4Drive Executive Business Theater at the SAE 2009 World Congress, executives from two global automotive market research groups—Alexander Edwards, President of Strategic Vision’s Automotive Division and Scott Miller, CEO, Synovate Motoresearch—shared their data and resultant views on green consumers and green autos.

How big is the green market? Strategic Vision shared data that only a small portion of consumers in the US are “truly green”, which means the customer is willing to pay significantly more for a green vehicle. Even globally the number is relatively small:

Region

% Truly Green Consumers

United States

4-6%

Western Europe

10-12%

China

13-15%

Miller of Synovate believes that in the US “20% of the people are willing to pay up to 10% of the vehicle’s purchase price more (i.e. $2,500 on a car with a base of $25,000) for a vehicle with green technology—all other things being equal.”

[Note: In the first quarter of this year takes rates have been averaging around 8-12% for the Camry, Civic and Escape hybrid versions.]

Neither Miller nor Edwards expect the number of truly green consumers to skyrocket soon. Edwards points out that attitudes like being green arise from values that are usually stable, internalized and emotionally charged and as a result they frequently stay constant over one’s lifetime.

The role of emotion in buying cars. Edwards and Miller both emphasized the importance of a buyer’s emotion in purchasing a vehicle.

Miller of Synovate has just finished research that shows “A car company’s reputation for being socially responsible is among the most important consideration for car buyers when determining from which companies they want to buy...however to be seen as socially responsible companies must do more than offer environmentally friendly vehicles. Other product attributes like reliability and safety, strongly influence consumer perceptions, as do employee enthusiasm and the company’s impact on the economy.”

Miller believes there are five trends defining the consumer experience, three of which apply directly to green technology: People today are over-stimulated with more information than we can possibly absorb. We’re always looking for ways to achieve risk reduction and we’re looking for a meaningful life.

Strategic Vision has a tree metaphor that is similar to Maslow’s hierarchy of needs. You start from the bottom and work your way up:

Esteem: proud of what you are doing.

Freedom: The ability to do what you want.

Security: Safe, trustworthy and dependable.

Edwards believes that while consumers move up the tree into areas like freedom and esteem they always maintain a strong connection to the security foundation. He shared with the audience his roller coaster analogy:

Any person who is interested in riding a roller coaster isn’t looking for the safest roller coaster they can find. They are looking for the most exciting roller coaster they can find. However, if they were to get to a roller coaster and just before they ride it they see the roller coaster fly off the tracks and everyone on it dies, they are not getting on the next car...if their security is threatened they are not going to make that decision.

Most people would agree that catastrophic failures are unacceptable but Edwards’ view of security extends beyond crash testing. He shared research that “People assume a quieter minivan is a safer minivan. How do you make a vehicle more quiet? Quietness is tied to larger engine size. The larger the engine, the quieter the vehicle. A larger engine gives you ‘active safety’, enabling you to accelerate out of problems much easier.”

Where hybrids get it wrong. Security isn’t limited to physical security. It is tied to perceived quality, the customer’s impression that thought and detail went into the product and sacrifices in one area, seemingly unrelated to fuel efficiency can impact the overall perception. Edwards detailed the case of a major OEM who seriously erred when it decided to thrift the interior of hybrid vehicle:

In order to keep the price within $3,000 - $4,000 they had to decontent [remove features and use cheaper materials] the interior. People were effectively paying $4,000 more for a vehicle with a decontented interior and that was coming off horribly with the customers...because of the perceived thoughtlessness that went into the vehicle...people don’t trust you...they wonder why are you doing these things?

In an age of over-stimulation, it doesn’t take much for a consumer to develop a rather daunting list of conscious and sub-conscious concerns about purchasing a hybrid. Miller of Synovate lays out how a consumer might view a hybrid:

We’re going to charge you more for this technology. We can’t tell you what the resale value is going to be. We’re not sure how much maintenance cost you are going to incur and quite frankly you many need to replace the battery pack after 3-4 years and it may cost between $3,000-$5,000. Gasoline may cost between $3-$5 while you own this vehicle. It is not quite as reliable, its not as powerful and it is not as fun to drive. Would you buy this vehicle? Not exactly a value proposition.

Miller points out that “even after [hybrids] being in the marketplace for 10 years, half the number of consumers think hybrids are reliable verses those that think internal combustion engines are reliable.” He’s also found that consumers believe hybrids don’t have as much power as traditional cars. Echoing Edwards, Miller said “Power isn’t as much a ‘fun attribute’ as it is safety, being able to accelerate on the highway.”

Why is the Prius a success? The panel identified three reasons why the Prius was a success:

First, the Prius makes a strong statement about environmental responsibility. Miller adds “In the US we’ve had customers talk about the Prius ‘badge of honor’, in Europe the strongest reason for buying a Prius was to make a statement about ‘the effort to do something else.’“ This is one of the reason Honda reintroduced the Insight, they wanted the Insight to be a unique body style rather than a powertrain option on a Civic.

Second, the Prius has a high quality of execution. Edwards of Strategic Vision adds “The Prius...when you get inside of it looks innovative and attractive. The styling is there. You can move from a BMW 3 series into a Prius and be proud. I can show that level of esteem.” The vehicle is perceived as being thoughtful.

Third, Toyota has always been a top brand in quality performance. People feel confident that Toyota will deliver a quality offering and has a history of standing behind its products. In other vehicles that lack the Prius’ unique selling points, i.e. the Camry hybrid, Toyota has struggled more with sales.

Making all things equal to improve public perception. Both Edwards and Miller believe that for the foreseeable future hybrid powertrains will not dramatically increase their market share until fuel prices remain high for an extended period of time.

Edwards believes that “Gas prices alone are not what will increase hybrid sales. For the US to truly embrace this technology, hybrids must: 1) Have innovative styling (i.e. Prius), 2) Be priced competitively (the Insight is a first step in the right direction, 3) Be capable enough to do the things that customers need their vehicles to do.”

Edwards cautions the automakers from diminishing any interior cues of quality to reduce the price gap since that will only lead to customer distrust.

Miller doesn’t believe the industry has convinced the American public that “all other things are equal” yet with hybrids and the average consumer still believes they are taking a financial risks that extends beyond a purchase price premium when they buy a hybrid. He believes two things need to happen for this to improve.

In the short term, he believes OEMs need to boost their warranty support for hybrids; there needs to be some kind of a floor on resale value and fuel pricing (i.e. fuel tax); and there needs to be assurances regarding OEM viability—all of which may involve government action.

In the long term, Miller challenges the industry to simplify their message and be more unified in how they promote new technologies. He asks:

There may be legitimate engineering reasons for having six different hybrid technologies but does the overstimulated consumer really have enough bandwidth to absorb and assimilate the differences between each one?

Are there more important messages, like hybrids are reliable, that the consumers are missing?

Miller believes the auto industry is falling into the trap of the computer software business by starting to promote the next generation of technology too early, thereby hurting the sales of the existing generation.

In the auto industry, such an approach can be even more insidious because people not only are worried about losing the esteem of driving the latest vehicle, but they fear their resale value may be hurt if they have $30,000 invested in a soon-to-be-orphan technology.

“We tracked the media buzz and in December of 2008 there was more buzz about Toyota’s plug in hybrid then there was about the redesigned Prius and other production vehicles...The Volt was a marketing success...but it put people on the sidelines. You are telling consumers just wait, if you want to drive the new technologies,” said Miller.

Comments

Green, irregardless of cost, may be good selling point to the Leonardo Di Caprios & granola eating college professors of the world. But for it to work for the masses, the benefits must outweigh the costs. You might be able to do a little sociological tinkering - try to get green "groups" to demonize, ridicule, mock & act superior to the non-green/not-as-green groups, but it will be the hit to the pocketbook at the end of the day which drives the adoption of green technologies. I will continue to drive my Dodge Ram Quad Cab 5.7L HEMI 4X4 until there is something green that is similar in quality, road presence, performance but cheaper in price.

When gas was over $4.00 a gallon, they couldn't keep hybrids on the lot because customers could see a reasonable return on investment that would justify the price premium. With gas prices now 50% lower, they are having a hard time giving them away.

Unless people can see saving enough money within a few years to pay off the price premium, hybrids will remain a "green status symbol" coveted by a small percentage of the market.

A better approach would be to concentrate on developing a long range EV, with no more than a price premium that could be recouped in three years or less. People would flock to buy such a vechicle. (I know. Easier said than done.)

People should consider dual power source vehicles with gas or diesel engine and electric motor/batteries that recharge during operation. Sometimes the hybrid power sources are better balanced in power and yield better mileage.

If you are not convinced that global warming is real, if you are not ready to pay more for a green car than for your ugly Doge, and if your are ready to pay more in gas too keep your truck polluting, why are spending so much time on this site? I don't get it ? go drive your truck and leave the green wonk in peace.

I am not in the "we're-all-gonna-die hysteria" though I think we have some sreious problems ahead with energy and climate change. But the comment of erji are particularly irritating, if he is happy with is poor quality polluting made in US truck and ready to pay the gas whatever it cost to keep it polluting why does he care so much about what's discussed on this site. Like you say a lot of people are not necessarily core greenist but still care about driving something more efficient and cleaner. But eji, he doesn't care, he just wants his right to pollute to be engraved in the marble as a birth right that's all he wants.

The point missing in the debate is that, unless I am mistaken, Chrysler is bankrupt, so it appears making Dodge Rams is not a sustainable business model. Given they can't be exported, and Americans have no credit to buy more, lets speak of them in the past tense. To pay back the trillions the US has borrowed Americans will buy less and consume less. Thats why auto sales are down 35% and truck sales more. And oil is now decoupled from the $US, when the $US falls domestic oil prices soar. Get used to it. And this is why people will buy hybrids and eat granola. Because they must.

Personally, I would like to see performance hybrids (possibly with AWD), which offer all goodies of inspired driving (stiff suspension, brisk throttle response, simulated engine braking, etc.) without fuel consumption penalty. Something like Subary WRX with fuel efficiency and reliability of Corolla.

Thirty-seven years ago during the 1973 Oil Crisis we developed a liquid fuel enhancer. We call it MPG50. When added to gasoline or diesel fuel, it provides many benefits including a gas mileage boost of 25% to 50%, a several point octane boost and up to 90% exhaust pollution reduction. It is extremely cost-effective and widespread use of MPG50 could cut American dependence on foreign oil by 35%.

See: http://www.youtube.com/watch?v=mSQh4zQcThc

Try a bottle of MPG50, (which treats 160 gallons of gas) for $25 & you get a $40 Gasoline Rebate Voucher. So, you make a $15 profit for trying it. Plus, with gas prices a $2/gallon one bottle of MPG50 will save you 50 cents/gallon, times 160 gallons, that's $80 more in gas or diesel fuel savings.

It is a "no brainer", because with its $40 Gas Rebate Voucher you are paid $15 for trying a $25 bottle of MPG50 which saves you $80 at the pump; See: http://mpg50.com

Yes truck are ugly, and generally when you look at the driver you might notice most of the time a faint resemblance with their dearly loved obese vehicle.

Or it is the other way around, people buy truck because they want a car that resemble them...

It is true that all the noise about the hybrids is not reflected in their sales figures, they are still a niche market. The gas is still too cheap, it has to stay above 4$ / gallon for hybrid to become mainstream, or a solid incentive policy.

Those people interested in green cars would not look down their nose at a Corolla or other economical car; green cars don't have to be top of the line EVs, HEVs, or PHEVs.

Those who want large pickup trucks and SUVs due to their 'road presence' have image priorities that outweigh their nation's energy security (assuming they live in a 1st world nation) and help funnel oil dollars to those who fund terrorists. 'Bang for the buck' indeed...

In April 2009, GM sold 41% cars, 59% trucks and is still way ahead of Tundra, Titan, Armada, Sequoia and etc. Forcing GM out of this market is not rational.

It is unrational to believe we can continue these purchasing patterns without suffering greater foreign energy dependence. Those who believe trucks are a major aspect of GM's future do not have the US's future at heart.

(Please no childish fantacies about braiwashing, free choice and how Americans are ignorant compared to those in developing countries.)

It can be boiled down to irresponsible lifestyle choices that put the nation at greater risk.

Engineers know we've been buying 'hybrids' since the first gas auto with an electric starter system. Finally, there are hybrids nearly doubling gas mileage with drivetrain price increases costing less than many 'appearance packages'.
It's sad enough that the smallest 4-wheel vehicles are using nearly twenty pounds of mass to move a pound of people.

Only about ten percent of our ten(10) mpg pickups are actually needed or used for construction/heavy hauling.

Big Oil(Arab/terrorists) counts on American fuel waste - US avg 25 mpg, rest of world 40 mpg. No one doubts Arabs will up the oil price, especially if we show signs of economic recovery. We send targets to occupy their countries - which creates terrorism and exhibits our corruption and arrogance as our over-reaction spends the US dollar into bankruptcy.

Meanwhile, fifty million Americans can't afford medical care/insurance in a world fearing/expecting disease pandemics (natural or terrorist). Another reason the world's other thirty-nine industrial nations dropped 'for-profit' medical insurance and have universal healthcare.

Under-utilized multi-ton SUVs and pickups might as well drive directly into buildings, because the Arabs use our fuel waste to harm, besides buy and own many of our remaining successful industries through common stock equity purchases.

"Only about ten percent of our ten(10) mpg pickups are actually needed or used for construction/heavy hauling."

This is why I advocated that only people that have a reason to buy a pickup be able to. You should have heard the outcry from people on this site to that. You would have thought that I was taking away free speech.

I am all with you on this, the purchase of a truck should be justified by a professional use. But you know here in california you see young emmigrant mexicans who literally rush to buy a red pick-up as soon as they have saved 5000$ just to put silver big wheels on it, and drive around town. This truck mentality is now all the american dream. You have to carry a thick dose of irresponsability to buy a truck these days, but that's what 50% of people are still doing, so yes we cannot avoid the shortcut :"American are ignorant compared to others in developped countries" they just don't get the whole thing. They are like eji, stuck in their stupid reasoning of "road presence' and "the bigger the better for the buck" nothing we can do for them. Like you said america will pay for this irresponsible behavior

Just a point of analysis here: Companies don't spend millions of dollars on advertising out of altruism to have an informed public. They spend that money because they can show that the more often the public hears their message, the more of their trucks they sell. If you don't want to call it brainwashing you can pick another name, but studies have shown that for every hour of TV you watch a day (on average) you spend $400 more each year on consumer goods.

My conclusion (and that of the car maker, and everyone else who advertises): Advertising induces people to buy things they otherwise wouldn't.

We all like our greenbacks too much to pay extra for Green Vehicles. Partialy or fully electrified vehicles will not sell in USA/Canada until the initial cost is the same or less than the equivalent ICE units.

The quickest way to make that happen may be to apply a new variable Federal liquid fuel tax to keep the retail price above $4/gal and use the extra revenues to promote cleaner, more efficient vehicles.

If $4/gal is not enough, it could progressively be raised to $5, $6, $7...$10 or and extra $1 per year.

If the Big-3 cannot or will not build such cleaner more efficient vehicles, they may deserve to go the 11 way soon.

American aeroplanes are sold all over the world. American software and movies too. Help me here, where else are Dodge Rams preferred? They exist because the auto company lobby got them excluded from CAFE and safety standards because they are "trucks". Where else in the "rational" world do half the market buy "trucks"? So these trucks are auto equivalent of sub prime. Just as Wall street got hooked on the profits of sub-prime, Detroit got hooked on the profits of SUV's and "trucks" and like Wall St, Detroit will get bailed out by Washington. However, when the $ goes down (as it must to repay the Chinese,and offset all the $ that must be printed to pay for the bailouts), the gas price will soar. And that is before Peak Oil.

But it is those who think blaming GM and having GM absorb more bailout money while Toyota and Nissan make more profit on trucks that may not have the US's future at heart.
Yet another fantasy; that people look like their vehicles. I know Prius drivers don’t look like armadillos or like they have been hugging trees.

TH, you’re giving bigotry (and grammar) a bad name.
I live in the Phoenix area and Mexicans do NOT appear to favor pickups for personal use. They regard pickups as low class work vehicles.
Quite the contrary. In general they seem to have a moderate percentage of pickup ownership but most often for work – to carry the tools, machines, workers etc.

We need CAFE and gas tax, not fantasy. The big-3 probably cannot compete without chapter 11 – and maybe not then.

"Only about ten percent of our ten(10) mpg pickups are actually needed or used for construction/heavy hauling."
This sounds like more fantasy; data cut from whole cloth – Do you have a source for this?
Maybe in your part of the country the “American are ignorant people” as TH claims.

Of course companies don't spend millions on advertising out of altruism, nor to have an informed public. This goes without saying so badly as to be ominous.

Of course advertising works to a degree. We have all probably imagined how nice if there was no advertising blasted at us - and no money “wasted” on it. So what?
GM, Toyota and etc) advertise trucks.
If you don't want to call it brainwashing you can pick another name.
NO - NO – NO. Ideas are to be communicated as precisely as possible. That’s why we invented language.

I call buying a Prius a small sacrifice forthat benefits all of us.
Some say it is only out of snobbery. Is that the same thing, just said differently? NO.

Gas prices will drive us to EV's...not green consciousness.
Better yet, gas shortages. Once the world economy rebounds gas will be more expensive than ever. Or, even difficult to get.
Even people who watch FOX news will be begging for EV's once the lines start forming at the gas pumps.